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Pledge to help small firms falls short - 23/03/2009

A pledge by the government to speed up its departments’ payments to small firms is failing to help the majority of targeted business, a new study shows.

Research from commercial credit reference agency Graydon UK reveals that the government’s pledge made last autumn, to pay small firms’ trade invoices in 10 rather than the usual 30 days, is taking far longer than expected to take effect.

The survey, conducted during the first two weeks of March, reveals that just one per cent of small businesses questioned, which are currently supplying government agencies, are now receiving payments due to them within the pledged 10 day period.

The results go on to show that more than a third, 39 per cent, of small firms said that they received payment from government departments within 10 to 30 days, compared to 53 per cent who were paid within 30 to 60 days and seven per cent after more than 60 days.

Graydon said that with the average payment period in the UK now standing at between 30 and 60 days, its results indicate that the majority of small businesses, 60 per cent, consider government departments no different to others in the market, in terms of payment practices.

Martin Williams, managing director of Graydon UK, said: "Whilst I applaud the Prime Minister’s desire to improve the cash flow of small businesses during these economically testing times, it seems that the political apparatus in this country has conspired against him in terms of actioning this undertaking.

"Clearly the government’s pledge is taking longer than expected to find its feet, but time is a luxury that many small businesses simply don’t have."

Williams added: "Although often overlooked, it’s also a fact that government agencies are suppliers as well, and like other suppliers, they too are suffering from a slowdown in payments.

"If they want to be able to consistently pay suppliers within the 10-day period, these agencies must evolve to become more efficient, and learn how to collect their own cash from debtors to speed up the flow of payments. After all, you can only pay out money if you have it coming in."

Phil McCabe, a spokesman for the Forum of Private Business (FPB), said: "The government's ambitious target to pay its suppliers' invoices within 10 days is welcome, but has obviously been impossible to achieve. However, a third of the businesses surveyed are being paid within 30 days. This is more encouraging, but it is still not enough.

"It is important that more public sector organisations take the lead and pay their invoices promptly. Every day, the failure of businesses and government agencies to do so decimates many small firms’ cash flow in an economic climate where they can least afford it."

McCabe added that the FPB's latest Referendum survey of members showed that 37 per cent are still being paid late. Its recent economic downturn panel has seen payment terms deteriorate further than at any time since its conception in November 2008, and, between August 2008 and January 2009, the amount owed to small businesses had risen from just over £1,000 to £3,600.